On 18 December 2025, the Bank of England (BoE) announced a 0.25 percentage point cut in the UK base interest rate, reducing it from 4.0% to 3.75%. This decision marks the lowest base rate in nearly three years and signals a shift in monetary policy as inflation continues to ease and economic growth slows.
For homeowners, buyers, landlords and investors, the base rate cut has important implications for mortgages, borrowing costs and the wider UK property market.
The Bank of England’s Monetary Policy Committee (MPC) voted narrowly in favour of the cut, citing falling inflation, which is now hovering just above 3%, and a cooling UK economy.
While inflation remains above the Bank’s long-term 2% target, policymakers judged that price pressures are easing sufficiently to justify lower interest rates. Slower economic growth and softer labour market conditions also played a role in the decision.
The rate cut is widely seen as the first step towards a more supportive interest-rate environment as the UK moves into 2026.
Lower costs for variable and tracker mortgages
Borrowers on tracker mortgages and variable-rate deals are the immediate winners. These products are directly linked to the Bank of England base rate, meaning monthly repayments should fall almost straight away.
For many households, a 0.25% cut could reduce repayments by approximately £15 per month for every £100,000 borrowed, depending on the lender and mortgage terms.
Standard variable rates (SVRs) are also expected to fall, although lenders may take longer to pass on the reduction.
Homeowners on fixed-rate mortgages will not see an immediate change to their monthly payments. However, the rate cut is already influencing the pricing of new fixed-rate mortgage deals.
As lenders anticipate further rate reductions in 2026, competition in the mortgage market is increasing. This is expected to push two-year and five-year fixed rates lower, particularly for buyers with larger deposits.
Borrowers coming to the end of a fixed deal in the next six to twelve months may find a more favourable remortgaging environment than in recent years.
Improved affordability for buyers
Lower mortgage rates improve housing affordability, especially for first-time buyers who have been most affected by higher interest rates over the past two years.
Reduced borrowing costs increase purchasing power and may encourage more buyers to re-enter the market, particularly in London and the South East where affordability has been stretched.
Boost to confidence and transaction levels
Although house price growth is expected to remain modest, improved mortgage affordability could support higher transaction volumes in 2026.
Sellers may benefit from renewed buyer confidence, while buyers gain greater certainty around monthly mortgage payments.
Implications for landlords and investors
Landlords with buy-to-let mortgages on variable or tracker rates will see an immediate reduction in finance costs, improving cash flow.
Lower interest rates may also stabilise investment activity, although wider regulatory and tax considerations remain key factors for landlords when assessing long-term returns.
If you are buying a property
If you are remortgaging
Many economists expect further gradual base rate cuts during 2026, provided inflation continues to trend downwards. Some forecasts suggest the base rate could fall towards 3.25% by the end of next year.
While interest rates are unlikely to return to the ultra-low levels seen before 2022, the direction of travel is clearly more favourable for borrowers.
With mortgage rates beginning to ease and buyer confidence gradually returning, now could be an opportune time to explore your property options — particularly if you are planning to buy in London or remortgage in the coming months.
At Crown Home Buying & Letting (CHBL), we specialise in guiding buyers through the London property market with clarity, discretion and expert local insight. Whether you are a first-time buyer, home mover or investor, our experienced team can help you identify suitable properties, understand current market conditions and navigate the buying process with confidence.
If you are considering purchasing a property or would like tailored advice on how falling interest rates may impact your plans, contact the CHBL team today. We would be pleased to discuss your requirements and support you at every stage of your property journey.
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